Middle America Business Conditions Index for September (Text)

Following is the text from the Mid-
America Business Conditions Survey of supply managers and
business leaders in the region from Creighton University.

September survey results at a glance:

After three straight months of declines regional leading
economic indicator up slightly

Employment gauge falls below growth neutral for second
straight month

Business confidence tumbles to lowest level since February
2009

Approximately 29 percent of firms anticipate layoffs in the
next six months, up sharply from December 2010.

For only the second time in the past six months, the
Business Conditions Index for the nine-state Mid-America region
increased. The index, a leading economic indicator from a
monthly survey of supply managers, continues to point to
positive, but anemic growth for the region for the next three to
six months.

Overall index:

The index, which ranges between 0 and 100, rose slightly
for September to 52.2 from 52.0 in August. While this is the
22nd consecutive month that the index has been above growth
neutral 50.0, industries and firms in the region linked to the
domestic economy are experiencing pullbacks in overall economic
activity. On the other hand, growth among firms tied to
agriculture and international markets has more than offset this
weakness. “Putting it together, I expect the region to continue
to expand at an anemic pace with little potential for a
recession in this region for the near term,” said Ernie Goss,
head of Creighton University’s Economic Forecasting Group.

The overall index, or Business Conditions Index, is a
mathematical average of indices for new orders, production or
sales, employment, inventories and delivery lead time. This is
the same methodology used by the national Institute for Supply
Management.

Employment:

For a second straight month, the employment index moved
below growth neutral. The September reading was up but still
frail at 49.6 from September’s 49.0. “Almost 22 percent of
survey companies reported net job reductions for September. This
month we asked survey participants about employment prospects
for their firm. Approximately 29 percent expect layoffs for
their firm in the next six months. This is much higher than the
7 percent that reported likely layoffs in December 2010. Clearly
the job outlook has deteriorated even in this part of the
country,” said Goss, director of Creighton’s Economic
Forecasting Group and the Jack A. MacAllister Chair in Regional
Economics.

Wholesale Prices:

The prices-paid index, which tracks the cost of raw
materials and supplies, dipped to 66.3 from September’s
inflationary 71.0. “As regional growth has waned, so have
inflationary pressures at the wholesale level. Asked about
future price increases, supply managers anticipate input prices
growing at an annualized 4.5 percent pace in the next six months.
With the current Federal Reserve policy remaining very
stimulative, I expect inflation to climb significantly above the
Fed’s target,” said Goss.

As one supply manager reported, “It is good to see
commodity prices coming down, but unfortunately the bad news is
the economy appears to be moving in the same direction.”

Confidence:

Looking ahead six months, economic optimism, as captured by
the September business confidence index, plummeted to 40.5, the
lowest reading since February 2009 and down from 43.4 in August.
“It is clear that the economic uncertainty engulfing Europe and
the U.S. have dampened the economic outlook of supply managers
in the region. Even though the regional economy continues to
grow, albeit at a weak pace, supply managers remain concerned
about the likely impact of a U.S. recession,” said Goss.

Inventories:

Since January 2010, supply managers in the nine-state
region have increased inventory levels 19 out of 21 months.
“This has been an important source of regional growth.
Unfortunately, September’s upturn to 55.0 from August’s 50.5 is
likely unintended and due to pullbacks in sales and production,”
said Goss.

Trade:

Despite a stronger U.S. dollar making imported goods
cheaper, firms reduced imports with a September index of 45.5,
down from August’s 46.6. The stronger dollar, making U.S. goods
less price competitive, and economic weakness among trading
partners pushed new export orders to 48.8, down slightly from
54.8. Given the importance of exports to regional growth, the
September pullback is a real concern,” said Goss.

Other components:

Other components of the September Business Conditions Index
were new orders at 49.6, down from 51.2 in August; production or
sales at 50.4, down from 54.2; and delivery lead time at 56.4,
up from 55.0 in August.

The Creighton Economic Forecasting Group uses the same
methodology as a national survey by the Institute for Supply
Management, formerly the Purchasing Management Association,
which has formally surveyed its membership since 1931 to gauge
business conditions. The overall index, referred to as the
Business Conditions Index, ranges between 0 and 100. An index
greater than 50 indicates an expansionary economy over the
course of the next three to six months.